Nature Risk Management: Looking to the Future

While still in its infancy, nature-related financial risk management is likely to become increasingly important, with financial firms expected to place a greater emphasis on measuring and mitigating nature risk.

However, as nature interlinkages with climate change become more widely appreciated, how might nature risk evolve and how fast will firms need to improve their capabilities to be adequately prepared?

Using data from our climate surveys in 2019-2022 and 2024’s nature risk survey, GARP Risk Institute examined what sets apart nature “leaders” from other firms and how nature-related financial risk management might change in the imminent future. 

Key insights include:  

• Board Oversight: Boards currently have substantially less oversight of nature-related risks (46%) than they had of climate-related risks in our first climate survey 2019 (81%). However, C-level engagement is at a similar stage of development to climate in 2019.  

• Scenario Analysis: Just 19% of firms are using scenario analysis to understand the impact of nature on their portfolio or balance sheet, compared with nearly half at the time of our first climate survey in 2019.

• Innovation: Only 31% of firms in our nature survey have changed their products or services because of nature risks, less than half those that had done so in response to climate change in 2019.

• Impact Assessment: Around 10% of the firms in our nature survey have assessed impacts on different aspects of their business, compared with 86% of firms when this question was first asked about climate impacts in 2020. 

About the authors

Jo Paisley, President, GARP Risk Institute, has worked on a variety of risk areas at GARP Risk Institute, including stress testing, operational resilience, model risk management, and climate and environmental risk. Her career prior to joining GARP spanned public and private sectors, including working as the Director of the Supervisory Risk Specialist Division within the Prudential Regulation Authority and as Global Head of Stress Testing at HSBC.

Dr Maxine Nelson, Senior Vice President, GARP Risk Institute, currently focuses on climate and environmental risk management. She has extensive experience in risk, capital, and regulations gained from a wide variety of roles across firms including Head of Capital Planning at HSBC. She also previously worked at the UK Financial Services Authority, where she was responsible for counterparty credit risk during the last financial crisis.